Thursday, September 28, 2006

Regulators: "Facts of Life" Insurance Tips

September is a busy month: First it was Coupon Awareness month and now there's talk about "Life Insurance Awareness Month." Conveniently, a group of state insurance regulators have put together a helpful tip sheet on life insurance.

The following info is from the National Association of Insurance Commissioners (NAIC) with some interesting stats and profiles based on a survey.

"Three Basics: What All Consumers Should Know About Life Insurance

1. Start by considering how many people are financially dependent on you, what their major expenses are likely to be and whether you're likely to leave them with substantial debts or taxes to pay on your estate. Life insurance can help on all of those fronts.

2. Evaluate the two main types of life insurance: term and permanent. As its name implies, term life insurance pays a death benefit if you pass away within a specified time period (typically a term of one to 20 years).

In contrast, permanent life insurance (which comes in many varieties such as whole life, universal life and variable life) includes both a death benefit and theability to build up cash value over your entire lifetime.

2a) Term vs LifeIn general, term life insurance is much less expensive than permanent life. In fact, term life premiums have decreased markedly during the past decade due to the fact that Americans are living longer on average. Consumers who purchased their policies more than a few years ago should check out current rates. Also, consumers should ask whether the policy they are considering charges a surrender or cancellation fee if they decide to drop the policy or switch to another one.

3. Understand the major factors that can affect life insurance premiums. Some are uncontrollable, like the age at which one purchases a policy or a serious pre-existing medical condition,like cancer or heart disease.

Other factors are much more dependent on an individual's behavior, like poor health habits (e.g., smoking and excessive drinking), driving record (e.g., accidentsand Driving While Intoxicated citations), engaging in dangerous hobbies (e.g., sky diving, car racing or rock climbing) and even where one lives, since mortality rates in a geographic region may be used by life insurance companies to help establish premiums.

Life Insurance Tips for Each Life Stage

The NAIC's consumer Web site, Insure U, provides focused tips to consumers based on their likely needs in different life stages. For example:

* Young singles who want to be sure that they can get life insurance later in their lives when they may develop health problems should consider purchasing term life insurance that is guaranteed to be renewable.

They may also want to consider a term policy with a conversion option, which enables them to switch, for a set fee, to a cash-value policy at a time when they havemore money. Those serving in the military should consider Serviceman's Group Life Insurance, low cost term life insurance available to all those in active duty.

* Young families should consider purchasing life insurance for both spouses, even for a non-working spouse, to help pay for child care and other domestic services.

At this life stage, term insurance may be the most cost effective when their salaries are still relatively low and they're paying off a mortgage. Some parents purchase small life insurance policies for their newborns toguarantee that they'll have some insurance if they develop health problems.

* Established families should consider the probable costs of their children's college education when determining how much life insurance they may need.

* Empty nesters/seniors should evaluate whether they can reduce their life insurance coverage based on such factors as whether their spouse is alive, their home is paid off, their childrenand/or grandchildren are financially independent, or if they anticipate high estate taxes that would be a burden on their heirs.

Some older individuals with significant financial assets may chooseto keep their life insurance in force because they view insurance as an estate planning tool that enables them to leave their loved ones money that is exempt from income and estate taxes.

"All consumers should remember to review their life insurance policy every year before paying their premiums and update it to reflect any major changes in their lives - like marriage, the birth of a child, divorce or the death of a spouse," said Catherine J. Weatherford, NAIC Executive Vice President and CEO.

"Before signing up for any kind of insurance, consumers should check withtheir state insurance department to make sure the company offering the policy is legitimate, solvent and authorized to do business in their state."

For more information about insurance, consumers can visit the NAIC's consumer education Web site, Insure U.

The Survey

Consumer research conducted by the NAIC earlier this year indicates:

* Only 35 percent of young singles have life insurance. Furthermore, few young singles (28 percent) express high levels of confidence in knowing the difference between the two basic types of life insurance, term and permanent, and a similar number (27 percent) are highly confident that buying life insurance when they are young will guarantee their coverage later in life.

* Among young families, nearly two-thirds (64 percent) believe it's "very important" for both spouses to have life insurance. Yet fewer than half (48 percent) say they actually have purchased life insurance for either spouse.

* Across all life stages, a significant number of consumers (around 40 percent) fail to review their life insurance policies on an annual basis.

ABOUT THE NAICHeadquartered in Kansas City, Missouri, the National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and the five U.S. territories.

Formed in 1871, the NAIC is the oldest association of state officials."

About Me: Writer, Mom and Journalist

I'm another spoiled writer, with fine tastes and a small budget. Author of a newspaper column about saving money. I have a fashionably frugal attitude: Live well, find meaning and stay on a budget.
Photo credit: Melanie Bell

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